Farm expansion is an exciting time for agricultural producers, especially when a new building is added to the farmstead. However, many producers are so eager to begin building that they are prone to sign any contract put before them. Producers are advised to take the time and effort to review every item before signing a contract. This publication provides a list of items that should be specified in writing before signing a building contract. To illustrate how specific items discussed in the text are incorporated into a contract, locate the letters in parenthesis that follow the specific items on the sample contract (Figure 1) that appears at the end of this publication. Herein, the party that is purchasing the building will be referred to as the "owner" and the party that is building the structure will be referred to as the "contractor."
Duties of the ContractorIn most cases, the contractor supplies all labor, equipment, and materials to complete the structure (a). The contractor is usually responsible for temporary electrical service during construction (b).
Duties of the OwnerThe owner usually provides telephone service and water required during construction. Any of the work, equipment, or materials to be supplied by the owner should be specified. The owner should be available throughout the project for consultation or interpretation of plans and specifications.
PermitsThe contractor is usually responsible for obtaining any necessary permits (c). Make sure that the party responsible for obtaining permits is specified in the contract.
Drawings and SpecificationsNo building should be constructed without a complete set of plans or technical drawings (not free-hand drawings) and written specifications (d). These may be supplied by either the owner or the contractor and should be included as a part of the written contract.
InsuranceFour general types of insurance coverage are required to afford complete protection during construction:
- Worker's compensation
- Public liability and property damage
- Owner's protective, and
- Builder's risk.
Workman's Compensation InsuranceThis insurance covers injury to employees working at the construction site and is provided by the contractor (e).
Public Liability and Property Damage InsuranceThis insurance provides protection for the contractor and subcontractors from claims for personal injury, including death, and from claims of property damage. The contractor provides public liability and property damage insurance.
Owner's Protective LiabilityThe owner or contractor may provide this insurance, which protects the owner in the event of liability claims that arise from the construction project.
Builder's Risk InsuranceThis type of insurance protects labor and on-site materials in the event of loss or damage by fire or other disasters. The contractor usually provides this, although the owner may be responsible in cost-plus types of contracts (f).
Either the owner or the contractor must secure adequate risk protection. Make sure that the parties responsible for obtaining the insurance coverages are specified in the contract. For more information on insurance during building projects, see "Selecting a Post-Frame Building Contractor" (VCE Publication 442-761).
Changes or AlterationsChanges in the original plans and specifications will probably be made during every construction project. Therefore, the owner and contractor must agree on the procedural policy to implement changes (g). Procedures should include details on initiation of changes, revisions in plans and specifications, and contract price revision necessitated by the change. A record should be created for all changes and signed by both parties
SubstitutionsDelivery schedules, equipment model changes, and price changes are all factors that can require substitutions during construction. Substitutions should be subject to the approval of the owner before being incorporated into the structure.
CleanupThe contractor should be required to clear the site of all construction debris and to clean all building surfaces upon completion of the construction (h). If the owner assumes all or part of this responsibility, the contract should reflect the work of each party.
Laws and RegulationsBuilding design and construction should conform to all applicable laws and regulations in a given locality (i). The owner should be notified when inspections by a local authority will occur.
PaymentThe written contract should specify the method and time of payment for the project. In general, large projects require payment of portions of the contract price at specific points during the construction process (j), with the final payment due on completion, inspection and/or, approval by the building inspector. Make sure the contract specifies who is responsible for payment of the subcontractors on the project.
Storage of MaterialsWeatherproof on-site storage of construction materials may be provided by either the contractor or the owner. The responsible party should be indicated in the contract.
Utility ConnectionsResponsibility for connections and associated costs for electric, water, sewer and gas lines and the extension of utility lines to the building site as required should be specified.
WarrantiesTerms of the contractor-supplied warranty should be spelled out in the contract (k). Provisions should also be made for transferring any warranties provided by manufacturers or suppliers of component parts from the contractor to the owner.
Service Manuals and Operational InstructionsThe contractor should be responsible for providing the owner with all operational and service manuals for component equipment. The contractor should also provide instruction in the proper and safe utilization of utilities installed in the project.
Time Schedule for CompletionFor some construction projects, particularly those involving animal housing, it is essential that a completion date be known well in advance. The owner and contractor should agree upon a completion date and any penalties to be paid if the contracted completion date is delayed.
SummaryThe majority of dealings between owners and contractors result in the satisfactory completion of the desired building. However, difficulties do arise, usually as a result of poor communication between the owner and the contractor. The items listed above should be thoroughly discussed with potential bidders to ensure that the desired building is properly constructed. Make sure each of these items is specified in writing before signing a contract. An important part of construction communication is a contract that adequately addresses the issues discussed in this publication as well as other project specific issues. Consultation with an attorney prior to signing any contract is highly recommended.
AcknowledgmentsThe author would like to express her appreciation for the review and comments made by Robert "Bobby" Grisso, Professor and Extension Engineer, Department of Biological Systems Engineering; Frank E. Woeste, Professor, Department of Biological Systems Engineering; Gordon E. Groover, Instructor and Farm Management Specialist, Department of Agricultural and Applied Economics; Thomas Stanley, Farm Management Extension Agent, Augusta County; and Larry J. Wills, President, Virginia Frame Builders and Supplies, Inc.
For Additional Information:On Contractor Selection
VCE Publication 442-761, "Selecting a Post-Frame Building Contractor"
Publication Modified from:
Meador, N.F. 1993. Selecting and Working with a Farm Building Contractor. Agricultural Publication G1005, MU Extension, University of Missouri-Columbia, Columbia, MO.
Harmon, J.D. 1998. Choosing and Working with a Farm Building Contractor. AEN-194, Iowa State University Extension, Ames, IA
Reviewed by Bobby Grisso, Extension Specialist, Biological Systems Engineering
Virginia Cooperative Extension materials are available for public use, reprint, or citation without further permission, provided the use includes credit to the author and to Virginia Cooperative Extension, Virginia Tech, and Virginia State University.
Issued in furtherance of Cooperative Extension work, Virginia Polytechnic Institute and State University, Virginia State University, and the U.S. Department of Agriculture cooperating. Edwin J. Jones, Director, Virginia Cooperative Extension, Virginia Tech, Blacksburg; M. Ray McKinnie, Interim Administrator, 1890 Extension Program, Virginia State University, Petersburg.
May 1, 2009